MRPL to repay Govt Rs 100 cr

NEW DELHI, DEC 24: The joint sector Mangalore Refineries and Petrochemicals Limited MRPL is likely to be asked to repay slightly over R...

NEW DELHI, DEC 24: The joint sector Mangalore Refineries and Petrochemicals Limited MRPL is likely to be asked to repay slightly over Rs 100 crore to the Government, as it has over-charged the Oil Coordination Committee OCC by this amount over the past two years. Orders for this are to be issued shortly by the OCC. MRPL is jointly owned by Hindustan Petroleum and the Aditya Birla group. MRPL, which denies the charges of over-charging the OCC, says the matter is still not decided as yet.

The genesis of the current controversy lies in what MRPL8217;s licensed capacity is and whether it has built up more than this. Under the somewhat-complex formula used for calculating the money that was to be paid by the Government to a refinery, if MRPL8217;s capacity is more than the licensed one, it would have been paid more than it should have been.

The reason is simple. Under the earlier control regime the oil sector was totally controlled by the Government till March 31 this year, refineries were paid a two-part tariffby the Government 8212; one, a fixed 12 per cent post-tax return on the basis of their capital cost, and the other, on the basis of their actual production.

Since it cost MRPL Rs 2,600 crore to build its refinery two years ago, its fixed or per tonne cost was based on a 3 million tonne capacity. But, the Government contends MRPL8217;s capacity is actually 3.75 million tonnes. In other words, the amount it actually spent on building the 3 million tonne refinery it was licensed to do, was less than Rs 2,600 crore. Since the government was reimbursing MRPL on the basis on its capital cost, it should then have paid it less. This difference is what has been calculated to be Rs 100 crore.

In 1996-97 itself, the first year of MRPL8217;s commercial production, with suspicions arising over whether MRPL8217;s capacity was indeed correct, the ministry of petroleum constituted a committee headed by A.G.A. Tauro, former chief of IOC, to examine the issue. After the Tauro committee said that MRPL8217;s capacity was indeed higher than thelicensed one, and this was contested by MRPL, another committee under Ravi Kumar of the Centre for High Technology CHT was constituted in 1997-98. This committee put MRPL8217;s actual capacity at 3.75 million tonnes.

According to the ministry of petroleum, MRPL8217;s Vacuum Distillation Unit VDU and its hydrocracker have been built to handle 3.75 million tonnes of crude. MRPL, however, points out that this happens in all refineries. All equipment suppliers, they point out, build in a certain cushion, or extra capacity, to ensure that the equipment finally delivers to specifications. So, in this case, since it made commercial sense for MRPL to produce more 8212; the OCC also pays them on the basis of the actual production 8212; they flogged8217; the refinery, ran it with very few shut-downs, to produce more.

While this debate carried on for over a year, some months ago, the government decided that it would work on the assumption that MRPL8217;s actual capacity was indeed 3.75 million tonnes. The Oil Coordination Committeewas then asked to calculate the extra amount that had been paid to MRPL due to this.

How MRPL over-charged the Govt

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Under the APM regime, refineries are paid in two parts. One, a fixed 12 per cent post-tax return on their capital cost, and second, on their recurring costs.

MRPL is alleged to have built up refining capacity of 3.75 million tonnes, instead of the licensed 3 million. So, the capital costs it showed 8212; Rs 2,600 crore 8212; were overstated.

MRPL has, in the past two years of operations, produced between 3.3 and 3.6 million tonnes of petroleum products, against its licensed capacity of 3mn. Says it produced this amount, by utilising its plant effectively and even flogging it.

Govt constitutes two committees which say that MRPL has actually built up excess capacity of 0.75 million tonnes. MRPL denies this, says that this so-called excess capacity is mere cushioning8217; which all plants have.